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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM
O R D E R
PER DR. A. L. SAINI, ACCOUNTANT MEMBER:
Captioned two appeals filed by the assessee pertaining to Assessment Year (A.Y.) 2013-14 and (A.Y.) 2011-12, are directed against the separate orders passed by the ld. Commissioner of Income Tax (Appeals), which in turn arise out of separate assessment order and penalty order passed by the ld.Assessing Officer under section 143(3) of the Income Tax Act and under section 271(1)(c) of the Income Tax Act, respectively. & 353/SRT/2017 for A.Y. 2013-14 & 11-12 Hamilton Housewares Pvt. Ltd., Vapi.
Since these two appeals pertain to same assessee, therefore we have clubbed these two appeals and heard together, and a consolidated order is being passed for the sake of convenience and brevity.
Now, first, we shall take assessee’s appeal in A.Y. 2013-14, wherein the grounds of appeal
raised by the assessee are as follows: “1. On the facts and in the circumstances of the case the learned Commissioner of Income Tax(Appeals) has erred in not admitting the additional ground of appeal raised by the appellant company during the course of appellate proceedings for adjudication. The action of the learned Commissioner of Income Tax(Appeals) is not in accordance with the provisions of the Act and law.
2. On the facts and in the circumstances of the case the notional income by way of DEPB credits, DFRC receipts or other export incentives credited in the profit and loss account be not considered as income liable for tax during the year in accordance with the decision of the Honorable Supreme Court in the case of CIT vs. Excel Industries Limited reported in 38 Taxmann.com 100(SC)
3. On appreciation of the facts and circumstances of the case, only net export incentives (and not gross) be considered as profits not eligible for the purpose of granting deduction u/s. 80IC of the Act
4. The appellant craves leave to add, amend, modify or alter the above grounds of appeal at any stage of appellate proceedings.
5. The appellant humbly prays that the appeal be allowed in toto.”
4.When this appeal was called out for hearing, the ld.Counsel for the assessee invited our attention to the order dated 09.06.2015 passed by the Coordinate Bench of ITAT Ahmedabad, in assessee’s own case, in 942 & 3305/AHD/2010, 2673/AHD/2011, for the assessment years 2005-06, 06-07, 07-08, 08-09, whereby the issue of “notional income by way of DEPB credits, DFRC receipts or other export incentives credited in the profit and loss account be not considered as & 353/SRT/2017 for A.Y. 2013-14 & 11-12 Hamilton Housewares Pvt. Ltd., Vapi. income liable for tax” has been discussed and adjudicated in favour of the assessee. The ld.Counsel for the assessee submitted that the present appeal is squarely covered by the aforesaid decision of the Tribunal, a copy of which was also placed before the Bench.
The ld.Departmental Representative relied upon the order of ld assessing officer.
We see no reason to take any other view of the matter than the view so taken by the Coordinate Bench of the Tribunal in assessee’s own case vide order dated 09.06.2015. In this order, the Tribunal has inter-alia observed as follows: “12.Now we come to assessee's appeal 1TA 1143/Ahd/2009. Its first substantive ground challenges action of the lower authorities' excluding export incentives of Dadra and Bayenderi_units mounting to Rs.65,98,801/- and Rs.46,51,472/- from profits eligible for section 80IB deduction. The case file indicates that the assessee has also filed alternative / additional grounds vis-a-vis its first substantive ground by filing a petition dated 24.2.2015 reading as under: "In regard to the captioned appeal proceedings before your honours, we would like to humbly request to permit us to raise the following additional ground before your honour as under.
On appreciation of the facts and circumstances of the case and without prejudice to other grounds of appeal
, the notional income by way of DEPB credits, DFRC receipts or other export incentives credited in the Profit and Loss Account be not considered as income liable for tax during the year in accordance with the decision of the Hon'ble Supreme Court in the case of CIT vs. Excel Industries Ltd. reported in 38 Taxman.com 100 (SC).
2. On appreciation of the facts and circumstances of the case and without prejudice to other grounds of appeal, the exclusion of DEPB credits, DFRC receipts or other export incentives for the purpose of calculating the profits eligible for deduction u/s 80IB of the Act shall be restricted to the net benefit after netting out the cost of obtaining the said benefit as specified and observed by the hon'ble Supreme Court in the case of Topman Exports vs. CIT (342ITR 49)" The Revenue objects admissibility of the assessee's alternative/ additional ground. The assessee quotes law settled by the hon'ble apex court in Excel Industries and Topman Exports (supra) propounding computation of notional income from DEPB credits/DFRC receipts/other export incentives accrues not in the year of export; but in the one corresponding to the imports and also devising 'netting' formula to be adopted in excluding face value of the above credits for computing profits eligible for section 80IB deduction; respectively. We reject the Revenue's technical objections and admit the additional grounds in view of the above settled legal preposition in the interest of justice. The assessee also fails to controvert the lower authorities' action excluding the above sums from the purview of section 80IB Page | 3 & 353/SRT/2017 for A.Y. 2013-14 & 11-12 Hamilton Housewares Pvt. Ltd., Vapi. deduction in principle. The fact also remains that these alternative pleadings require Examination of new facts and details for the purpose of computation of notional income from export incentives as well as net profits in view of above stated case law. Thus, we reject the assessee's main ground in principle and accept additional/alternative grounds for (statistical purposes and remit the same back to the Assessing Officer for adjudication afresh as per law. The assessee shall produce all the relevant details in consequential proceedings.”
As the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in assessee’s own case (supra) and there is no change in facts and law and the Revenue is unable to produce any material to controvert the above said findings of the Coordinate Bench(supra). We find no reason to interfere in the said order of the Coordinate Bench, therefore, respectfully following the judgment of the Co-ordinate Bench in assessee’s own case, we remit this issue back to the file of the ld.Assessing Officer for necessary verification and for adjudication afresh as per law. The assessee is directed to produce all the relevant details in consequential proceedings.
In the result, appeal filed by the assessee in , is allowed for statistical purposes.
Now, we shall take penalty appeal of assessee, (under section 271(1)(c) of the Act), in for the A.Y. 2012-13, wherein the grounds of appeal raised by the assessee are as follows:
“01. The order imposing penalty U/s 271(1)(c) of the Act is contrary to the facts of the case and prejudicial to the Law. The appellant has neither concealed its income nor submitted any inaccurate particulars of income and the action of the Learned Commissioner of Income Tax (Appeals) is contrary to the facts of the case and law and deserves to be deleted.
2. On appreciation of the facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Learned Assessing Officer imposing penalty U/s 271(1)(c) to the tune of Rs. 6,35,330/-.”
& 353/SRT/2017 for A.Y. 2013-14 & 11-12 Hamilton Housewares Pvt. Ltd., Vapi.
Brief facts qua the issue are that assessee has filed its return of income for F.Y.2010-11, relevant to A.Y.2011-12 on 29.09.2011, declaring an income of Rs.13,71,28,410/-. Subsequently, the case was selected for scrutiny and assessing officer has framed assessment u/s 143(3) of the I.T. Act, on 04.02.2014 assessing the income as Rs.14,39,59,714/- after making the disallowance of deduction u/s 80IB in respect of its Dadra Unit and exclusion of following other incomes from the profits eligible for deduction u/s 80IB of the Act:
(a). Foreign exchange gain Rs.1,38,851/- (b).Scrap sales Rs.65,52,841/- (c ) Debit/credit balances written back Rs.39,321/- (d) Misc receipts Rs. 1,00,296/- (e) Addition to the tune of Rs.34,26,806/- has been made to the book profit u/s 115JB of the Act on account of exclusion of provision for doubtful debts.
Penalty proceedings under section 271(1)(c) of the Act were initiated for concealment of income and for furnishing inaccurate particulars of income by the assessee at the additions made at Rs.34,26,806/- on account of exclusion of provision for doubtful debts from the book profit u/s 115JB of the Act.Considering the facts and circumstances available on record the assessing officer held that assessee has concealed the income of Rs. 34,26,806/-. Therefore, the assessing officer has worked out the penalty @ 100% of the tax sought to be evaded to the tune of Rs.6,35,330/-.
On appeal, the ld CIT(A) has confirmed the penalty imposed by the assessing officer. Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us.
Learned Counsel for the assessee submits before us that assessee`s case falls in the Jurisdiction of Bombay High Court. The Ld. Counsel invited our attention to the notice issued under section 271(1) (c ) of the Act where two limbs are mentioned viz: (i) Concealed the particulars of income and (ii) Furnished inaccurate particulars Page | 5 & 353/SRT/2017 for A.Y. 2013-14 & 11-12 Hamilton Housewares Pvt. Ltd., Vapi.
of income. He stated that assessing officer has not ticked any of the limbs in the notice issued under section 271(1) (c ) of the Act, therefore, the assessee`s case is covered by the judgment of the jurisdictional High Court of Bombay in the case of Mohd. Farhan A. Shaikh, 434 ITR 1 [Bom (FB)], hence assessee`s appeal may be allowed. The ld Counsel also argued on merits of the case and submitted that assessee has neither concealed the particulars of income nor furnished inaccurate particulars of income therefore, the penalty imposed by the assessing officer may be deleted.
On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. The ld.Counsel for the assessee invited our attention on page no.1 of the paper book, wherein the penalty notice under section 271(1)(c) of the Act is placed. In the said penalty notice, no any charge has been specified by the ld.Assessing Officer. The relevant portion of penalty order is reproduced below: “have concealed the particulars of the your income or ……………. Furnished inaccurate particulars of such income.” We note that there is no any definite charge/ accusation on the assessee, whether initiation of penalty proceeding is on account of ‘concealment of income’ or on account of ‘furnishing inaccurate particulars of income’. We note that jurisdictional High Court of Bombay in the case of Mohd. Farhan A. Shaikh, 434 & 353/SRT/2017 for A.Y. 2013-14 & 11-12 Hamilton Housewares Pvt. Ltd., Vapi.
ITR 1 [Bom (FB)] held that penalty notice under section 271(1) (c ) of the Act must clearly specify charges against assessee. The notice in printed form without deleting inapplicable portions by assessing officer would invalidate the penalty proceedings and penalty imposed by the assessing officer under section 271(1) (c ) of the Act would not sustain. The findings of the Hon`ble Court is reproduced below: 180. One course of action before us is curing a defect in the notice by referring to the assessment order, which may or may not contain reasons for the penalty proceedings. The other course of action is the prevention of defect in the notice— and that prevention takes just a tick mark. Prudence demands prevention is better than cure. Answers: Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(1)(c), does a mere defect in the notice—not striking off the irrelevant matter—vitiate the penalty proceedings? 181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.
More particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee's favour. & 353/SRT/2017 for A.Y. 2013-14 & 11-12 Hamilton Housewares Pvt. Ltd., Vapi.
Therefore, we answer the first question to the effect that Goa Dourado Promotions and other cases have adopted an approach more in consonance with the statutory scheme. That means we must hold that Kaushalya does not lay down the correct proposition of law. Question No. 2: Has Kaushalya failed to discuss the aspect of 'prejudice'? 184. Indeed, Smt. Kaushalya case (supra) did discuss the aspect of prejudice. As we have already noted, Kaushalya noted that the assessment orders already contained the reasons why penalty should be initiated. So, the assessee, stresses Kaushalya, "fully knew in detail the exact charge of the Revenue against him". For Kaushalya, the statutory notice suffered from neither non-application of mind nor any prejudice. According to it, "the so-called ambiguous wording in the notice [has not] impaired or prejudiced the right of the assessee to a reasonable opportunity of being heard". It went onto observe that for sustaining the plea of natural justice on the ground of absence of opportunity, "it has to be established that prejudice is caused to the concerned person by the procedure followed". Smt. Kaushalya case (supra) closes the discussion by observing that the notice issuing "is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done". 185 No doubt, there can exist a case where vagueness and ambiguity in the notice can demonstrate non-application of mind by the authority and/or ultimate prejudice to the right of opportunity of hearing contemplated under section 274. So asserts Smt. Kaushalya case (supra) .In fact, for one assessment year, it set aside the penalty proceedings on the grounds of non-application of mind and prejudice. 186. That said, regarding the other assessment year, it reasons that the assessment order, containing the reasons or justification, avoids prejudice to the assessee. That is where, we reckon, the reasoning suffers. Kaushalya's insistence that the previous proceedings supply justification and cure the defect in penalty proceedings has not met our acceptance. Question No. 3: What is the effect of the Supreme Court's decision in Dilip N. Shroff Case (supra) on the issue of non-application of mind when the irrelevant portions of the printed notices are not struck off ?
& 353/SRT/2017 for A.Y. 2013-14 & 11-12 Hamilton Housewares Pvt. Ltd., Vapi.
187 In Dilip N. Shroff case (supra), for the Supreme Court, it is of "some significance that in the standard Pro-forma used by the assessing officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done". Then, Dilip N. Shroff case (supra), on facts, has felt that the assessing officer himself was not sure whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars.
We may, in this context, respectfully observe that a contravention of a mandatory condition or requirement for a communication to be valid communication is fatal, with no further proof. That said, even if the notice contains no caveat that the inapplicable portion be deleted, it is in the interest of fairness and justice that the notice must be precise. It should give no room for ambiguity. Therefore, Dilip N. Shroff Case (supra) disapproves of the routine, ritualistic practice of issuing omnibus show-cause notices. That practice certainly betrays non- application of mind. And, therefore, the infraction of a mandatory procedure leading to penal consequences assumes or implies prejudice.
In Sudhir Kumar Singh, the Supreme Court has encapsulated the principles of prejudice. One of the principles is that "where procedural and/or substantive provisions of law embody the principles of natural justice, their infraction per se does not lead to invalidity of the orders passed. Here again, prejudice must be caused to the litigant, "except in the case of a mandatory provision of law which is conceived not only in individual interest but also in the public interest".
Here, section 271(1)(c) is one such provision. With calamitous, albeit commercial, consequences, the provision is mandatory and brooks no trifling with or dilution. For a further precedential prop, we may refer to Rajesh Kumar v. CIT [2007] 27 SCC 181, in which the Apex Court has quoted with approval its earlier judgment in State of Orissa v. Dr. Binapani Dei AIR 1967 SC 1269. According to it, when by reason of action on the part of a statutory authority, civil or evil consequences ensue, principles of natural justice must be followed. In such an event, although no express provision is laid down on this behalf, compliance with principles of natural justice would be implicit. If a statue contravenes the principles of natural justice, it may also be held ultra vires Article 14 of the Constitution.
& 353/SRT/2017 for A.Y. 2013-14 & 11-12 Hamilton Housewares Pvt. Ltd., Vapi.
As a result, we hold that Dilip N. Shroff Case (supra) treats omnibus show- cause notices as betraying non-application of mind and disapproves of the practice, to be particular, of issuing notices in printed form without deleting or striking off the inapplicable parts of that generic notice. Conclusion: We have, thus, answered the reference as required by us; so we direct the Registry to place these two Tax Appeals before the Division Bench concerned for further adjudication.”
Respectfully following the binding precedent of the jurisdictional High Court of Bombay in the case of Mohd. Farhan A. Shaikh(supra), we delete the penalty.
In the result, appeal of the assessee in for A.Y. 2011- 12, is allowed.